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Proceeds of crime: New investigatory regime

Resource type: Article

Status:
Published on 25-Feb-2003

Jurisdiction:
United Kingdom

Chapter 2, Part 8 of the Proceeds of Crime Act 2002 has consolidated and expanded the categories of investigatory powers for use in three different types of investigation by four separate categories of investigator.

Paul Friedman, Baker & McKenzie

Investigatory powers such as production and search orders have long been a valuable weapon of investigation authorities both in the fight against financial crimes and to effect civil recovery. Chapter 2, Part 8 of the Proceeds of Crime Act 2002 (PCA) has consolidated and expanded the categories of investigatory powers for use in three different types of investigation by four separate categories of investigator. The PCA received Royal Assent in July 2002 (www.practicallaw.com/A25580) and the search and seizure powers came into force on 30 December 2002 (see below). The remaining powers were due to come into force on 24 February 2003.

The powers

The five investigatory powers are:

Production orders for obtaining material already in existence relating to a known account in the control of a known person, for example, bank statements and correspondence (section 345, PCA).

Search and seizure warrants for searching premises where production orders are not complied with or where production orders are likely to be ineffective, and seizing material (section 352).

Customer information orders for trawling financial institutions for accounts in the name of a particular person or organisation (section 363).

Account monitoring orders for monitoring future transactions through a known account for up to 90 days (section 370).

Disclosure orders for requiring any person to produce documents, provide information or answer questions relating to an investigation (section 357).

The third and fourth powers are new and will be aimed primarily at financial institutions.

Operation of powers

The investigations for which the powers may be used are criminal confiscation, money laundering and civil recovery. The investigators are the Director of the newly created Assets Recovery Agency (the Agency) and any constable, customs officer or Accredited Financial Investigator (including, for example, from the Inland Revenue and the Serious Fraud Office).

The Agency is only concerned with the recovery of criminal assets through criminal confiscation and civil recovery investigations and the Director will be the only investigator entitled to use the five powers in relation to civil recovery (Part 5, PCA). Other investigators will be entitled to the four powers (other than the disclosure order) in relation to criminal confiscation and money laundering investigations.

The orders are subject to judicial approval, which means that they require mandatory disclosure overriding contractual duties of customer confidentiality. They impose express and implied restrictions on the use to which the documents and information disclosed may be put. The orders are also required to set out details of the nature and scope of the disclosure sought and background information on the investigation in relation to which the order has been obtained. Failure to comply with these orders will constitute a criminal offence, carrying a maximum prison sentence of two years, unless there is a reasonable excuse (as decided by the court). A person found guilty of the offence of prejudicing an investigation under the PCA, for example by destroying or concealing documents required by an order, will face up to five years in prison.

An order may require production of documents in a person's "possession or control". This term mirrors that used in the Civil Procedure Rules, where it is defined to include not only documents within a person's physical possession but also those where either there is a legally enforceable right to the document or where there has existed a right to inspect or take copies of it. Where the order is addressed to an individual who is a director of more than one company, further investigation will need to be undertaken to ascertain which documents need to be disclosed and in what capacity the person is required to disclose them. Documents held by a branch of a defendant company (whether in the UK or abroad) will be discloseable while those held by a subsidiary (which is a separate legal entity) will generally not.

Complying with an order

A recipient of a production order must carry out a thorough search for any document falling within the specified category and the onus will be on that recipient to show that it has conducted an adequate search (see, for example, Fox v Uxbridge General Commissioners [2002] STC 455). There is no obligation, however, to produce a document no longer in the recipient's possession. On receipt of an order immediate steps should be taken to halt any relevant automatic document destruction procedures, to the extent that this is reasonably practicable. Legally privileged documents may not be removed or accessed by the investigators. (Legal privilege (described by the House of Lords as a "fundamental human right" (R (on the application of Morgan Grenfell & Co. Ltd) v Special Commissioner of Income Tax, www.practicallaw.com/ A24756))covers communications between a client and his lawyer and documents created in anticipation of actual or contemplated legal proceedings.) Communications made for a criminal purpose, however, are not privileged (see, for example, Follet v Jefferyes (1850) 1 Sim NS 3).

The search and seizure warrants envisage that "seize and sift" powers will be made available where the extent and complexity of the search mean that it will take a long time to complete. These powers enable those executing the search to take large volumes of material away, view the material and return documents that are either not relevant or privileged. This must be done as soon as reasonably practicable unless clear and compelling reasons exist for delay (as required by the Home Office's code of practice (see "Code of practice" below)).

Businesses need to consider what, if any, contractual obligations they have to their customers to disclose information about the existence of the investigation. At the same time they must assess the potential risks of making such disclosures. It is an offence to make any disclosure likely to prejudice a money laundering investigation and to prejudice a prospective investigation by making a disclosure ("tipping off") or tampering with evidence (sections 333 and 342, PCA).

An order will require disclosure to an "appropriate officer" within a fixed period (section 345, PCA). It is important to notify the requesting body of any anticipated difficulty in complying with the deadline. If necessary, an extension should be obtained from the court. There is no obligation to challenge an order, although reasonable steps should be taken to check its validity. Where legal advice indicates that the order may be invalid or improperly obtained steps may be taken to set it aside by application to court. There is no obligation to exhaust all available appeal options.

Employee conflict of interest

Where there is a possibility that the interests of an employee may conflict with those of their employer (for example, where an employee has been party to the acts being investigated), the employee should be invited (and possibly required) to obtain independent legal advice. An individual who is the subject of an order either directly or in their capacity as an employee may be entitled to refuse to comply with it on the basis that by doing so he will incriminate himself in possible criminal proceedings (such as for theft) in the UK (or elsewhere) (see, for example, Saunders v UK [1996] 23 EHRR 313). The defence of self-incrimination will not be available to financial institutions for money laundering offences and would be unlikely to be applicable to other criminal offences.

Money laundering obligations

Financial institutions that receive an order as part of a money laundering investigation must consider whether a suspicious transaction report should be made to the National Criminal Intelligence Service and what, if any, details should be included in the money laundering officer's annual money laundering report (for more information see feature article "Money laundering: Updating your procedures", www.practicallaw.com/ A14244).

Code of practice

The Home Office published a draft code of practice for consultation in November 2002 in accordance with section 377 of the PCA. The code was due to be published in final form shortly after 24 February 2003, when the remainder of the powers came into force. One of its purposes is to ensure that the powers are exercised proportionately, consistently and within an agreed framework compatible with the Human Rights Act 1998 (to which the PCA is subject). The code expressly recognises that the powers may infringe individual human rights and therefore requires appropriate officers to satisfy a judge that any such infringement is proportionate to the benefit sought. Those seeking the orders are also required to consider whether a less intrusive method would achieve their objectives. A judge must be satisfied that any suspicions relied on are based on reasonable and objective grounds derived from facts and information, not personal factors alone. Although it is possible to apply for orders without notice, where a financial institution is the intended defendant it will normally be notified in advance.

Paul Friedman is a partner in the Dispute Resolution Department of Baker & McKenzie, London.